Why fast rolling of money is needed

I will start with a story. There was a little town where people were going through tough times. Everybody was in debt and lived on credit. A rich tourist came to a hotel in that town. He did not like the hotel much but still agreed to give him a deposit of 100 dollars so he could inspect the room. While the tourist was inspecting the room, the hotel owner paid those 100 dollars to the butcher from whom he was buying meat for his guests. The butcher in turn rushed to grocery owner from where he purchased his grocery. The grocery owner had once arranged for some guests of his to stay at the hotel and had to repay his due. He immediately went to the hotel owner and paid back those 100 dollars.

The tourist, after inspecting the room carefully, said he did not like it and wanted his money back. The hotel owner returned him his 100 dollars as this money had come back to him.

None of the people in town had money but still they managed to repay their debts. Why? Because the money exchanged hands quickly. Had the money being sitting idle at some place, some of them would still have been in debt in the above story.  The key point is money should be in circulation as much as possible.

The present capitalist system allows limitless accumulation of wealth, which is mostly unutilized. Further, money stashed for various reasons like evading taxes or transferred to tax heavens or other foreign countries is generally either not utilized or utilized for the country, where it is hoarded.

Also because of lopsided wealth distribution, most of the money is not in circulation. As per an Oxfam report, the gap between rich and poor is increasing every year. 1% of rich Indians hold 73% of wealth in India. A rich person will not spend money beyond a certain limit or requirements. A poor person will not typically buy his most basic everyday necessities with a loan. When more people have a decent amount of money, the higher the expenditure and the more the economy will therefore prosper. Some people argue that the wealthiest people create jobs to poor. In today’s scenario of prevailing jobless growth, however, the richest people in India are making more money by investing in machines without giving more employment to people. So, even if givernment thinks of taking money from Reserve Bank of India and pumping in the system, it wont be giving much employment to people.  Supply side economics can't work in current scenario.

Whilst I  don’t discourage use of machines, distribution of wealth should also be borne in mind. Profits should be shared more widely rather than being concentrated in the hands of a few.

In the present day centralized economy, goods are produced in bulk. For example – people in some states of India are getting money by selling their natural resources. The money earned from it goes to purchase products manufactured in different countries like China. It has gone very far now and with growing imbalance of trades, it is less likely to come back to your local community.

Just to leverage economies of scale, local economies deprive themselves of money that, if circulated in the locality, could have led to an aggregate benefit for the community. When consumers decide to pay less for a product (especially the imported ones) they do so taking account of the immediate cost savings; but what is not calculated is the spillover benefits of buying local.

At the national level, we further take loans from certain countries and then pay them interest which is collected from people’s pocket in form of tax. If we avoid this trap, our tax should decrease. What is lost due to missing the better deals enabled by economies of scale, we should benefit in terms of tax. 

That’s why a decentralized economy is needed today. PROUT (progressive Utilization Theory) propagates concept of 'Economic Democracy' which will be achieved by adopting the principles of a decentralized economy. It suggests to form different socio economic units and circulate the money within that socio economic unit. These socio-economic units will be based on common economic problems, common potential, culture and expression of people, sentimental legacy. Each socio-economic unit should be made self-sufficient to the extent possible so that it has to import minimum products. Even during import it should be kind of barter trade so that balance of payment is maintained. Import should be offset with export as much as possible. 

I would like to conclude with, governments across globe should ensure the movability or mobility of money as maximum as possible. Their economic policies should be such that money reaches hands of many rather than remaining concentrated in hands of few. Every region should be supported to be self-sufficient. It will ultimately strengthen the overall economy as well. 

Looking for your suggestions – Should we have completely digital cash based economy so that people don’t hoard physical cash? This will keep maximum money in system.

It could be somewhat better but still it will not solve the problem of inequality.